Lecture #2.

NATIONAL INCOME ACCOUNTING / GROSS NATIONAL PRODUCT

Definitions
Gross National Product (GNP) – measures the market value of final goods and services
produced within a country's borders and resources, by citizens and non-citizens alike. GNP
measures the value of goods and services produced by only a country's citizens but both
domestically and abroad (
https://www.investopedia.com. December 9, 2021).
Gross National Product (GNP) measures the market value of all final goods and services
produced by a nation’s economic resources during a specified period. It reflects the economic
performance of a nation (Silon, et al, 2010).

Gross domestic product (GDP) - is the monetary value of all finished goods and services made
within a country during a specific period. GDP provides an economic snapshot of a country, used
to estimate the size of an economy and growth rate. GDP can be calculated in three ways, using
expenditures, production, or incomes (
https://www.investopedia.com. December 9, 2021).
GDP is the total market value of all final goods and services produced within the territories of a
nation in a given year. An increasing GDP suggests an improving economy. However, it should
be noted that in most third world countries whose economy is dominated by foreigners, GDP is
usually bigger. This does not necessarily mean an improving economy. It may only mean that the
value of final goods and services produced by the foreigners in these third world countries is
increasing (Silon, et al, 2010).

Consumer Price Index (CPI) - is the instrument to measure inflation. It is used to estimate the
average variation between two given periods in the prices of products consumed by households.
It is a composite measurement of trends in the prices of products, at constant quality (
https://www.investopedia.com. December 9, 2021).
A price index is a device for combining movements of many individual prices for the purpose of
estimating the average movement of some specified group of prices. It is often used to deflate
variables expressed in money terms to take out the effect of price changes (Silon, et al, 2010).
Formulas
Remember: GNP =GNE = GNY = GNVA
1. Expenditure Approach (Gross National Expenditures or GNE)
GNP = GNE = C + I + G + (X – M) + NFIA NE=X – M X > M…… + NE
Where: C – Household Consumption < -
Cr – Real consumption
 Co – Autonomous consumption
I – Gross domestic investment I = RIC + DCE + Inv D
RIC – Residential and Industrial construction
DCE – Durable capital equipment
Inv D - Changes in inventory
G – Government expenditure
NI = I – CCA
NI – Net Investment (Net of fixed assets)
X – Exports
M – Imports
NFIA = Xy – Me
NFIA – Net factor income from abroad
Xy – Export income (OFW and Filipino businesses’ income abroad)
Me – Import expenditures (foreigners’ income in the Philippines)
2. Income Approach (Gross National Income or GNY)
GNP = GNY = PY + GY + CP + IBT + CCA
Where:PY = w + r + i
GY = Taxes + Nontaxes (GOCC’s)
PY – Personal income
w – wages or salary income
r – rent income
i – interest income
GY - Government income
CP – Corporate profits
IBT – Indirect business taxes, like VAT
CCA – Capital consumption allowance or Depreciation
3. Value Added Approach (Gross National Value Added or GNVA)
GNP = GNVA = VAA + VAI + VAS + NFIA
VAA – Value added by agricultural sector.
VAI – Value added by industrial sector.
VAS – Value added by service sector.

Other Concepts:
GDP = GNP – NFIA
NY = GNP – IBT – CCA or NY = PY + CP + GY
PDY = PY - PYT
NY – National income
PDY – Personal disposable income
Remember: GNP =GNE = GNY = GNVA
Examples:
#1) Given:
X = 1,000 DCE = 200 VAA = 1,000 Xy = 900
C = 400 w = 600 CCA = 200 RIC = 200 VAS = 400
VAI = 700 r = 300 IBT = 400 i = 200 Me = 600
CP = 500 G = 800 M = 600 Inv D = 100 GY = 200
Compute:
a. GNE b. GNY c. GNVA d. GDP
Answers:
a. GNE = C + I + G + (X – M) + (Xy – Me )
= 400 + (200 + 200 + 100) + 800 + (1,000 – 600 ) + (900 – 600 )
= 400 + 500 + 800 + 400 + 300
= 2,400
b. GNY = (600 + 300 + 200) + 200 + 500 + 400 + 200
= 1,100 + 200 + 500 + 400 + 200
= 2,400
c. GNVA = 1,000 + 700 + 400 + (900 – 600)
 = 2,400
d. GDP = 2,400 – 300
= 2,100

#2) Given:
PY = 2,000 VAA = 1,000 NFIA = 500 X = 3,000 M = 2,000
GDP = 4,000 Me = 1,500 I = 1,200 G = 1,400 w = 600
Compute: C

Answer:
C = GNE – (I + G + NE + NFIA)
= 4500 – ( 1200 + 1400 +1000 + 500)
= 4500 – 4100
= 400

NE = 3000 – 2000 = 1000